Business & farm

Well.....good news and bad news and some comments:

• Under Section 706, the interim closing of the books is the default method of handling this.
• The LLC (taxed as a partnership) can use the proration method only if agreed to by the partners.  In this case you would want to make sure you have a document signed by all partners.  Absent this, the interim closing of the books is mandatory.
• TT can handle this, however depending on what items on the K-1 you are dealing with, it may be a little complicated.
  • You can use Excel and develop a model of what the income allocation should be based on each period and member ownership.  You would then use this model to determine a member allocation percentage and use that in TT for the member's profit and loss percentages (not their capital).
  • This would work for most line items, but where it may not work is in the area of capital gains, losses depending on when those occurred.  This may require a separate excel computation.
  • If your LLC only has capital gains and losses, then this may be feasible.  In most cases partnerships are having ordinary business income, maybe some rental, possible some capital transactions, etc.  This would require separate allocations as noted next. 
  • Just not sure what line items your LLC will be reflecting on the K-1.
• If bullet 3 isn't feasible, you would have to develop the allocations in excel as noted above (for each specific K-1 line items) and override each member's allocation.  Doing this would preclude you from efiling your form 1065.
• If bullet 3 would work, then you would have to remember to change the profit and loss percentages in TT next year to actual.
• If bullet 3 doesn't work, and you need to override each K-1 line item, then I recommend you put "var" for each member's profit and loss percentages.  For capital interest you can use actual.